Construction falls for 34th consecutive month

The national construction industry has suffered its 34th consecutive month of contraction in March, showing the difficulties faced by building, construction and housing supplies companies.

The seasonally adjusted Australian Industry Group/Housing Industry Association (AIG/HIA) Construction Index dropped by 6.6 points in March to 39.0. A reading under 50 shows the industry is declining as opposed to expanding.

Falls came across the board with apartment building falling the most in five months, while house building and engineering construction both declined. Supplier activity, new orders and deliveries were all weaker than the previous month, while employment contracted at a sharper rate. The commercial construction sector remains the weakest performing sector, although its rate of decline appears to have flatlined.

According to the AIG/HIA report, most businesses blame the ongoing decline in activity on subdued levels of incoming work and a shortage of new tender opportunities. Tight credit conditions, project delays and weak investor sentiment are also playing their part.

For building materials companies like Boral Limited (ASX: BLD), CSR Limited (ASX: CSR), James Hardie (ASX: JHX) and Brickworks Limited (ASX: BKW), the news was not good and appears to be getting worse, with the rate of change accelerating across most sectors.

Despite the Reserve Bank of Australia’s 1.75% of cuts to the official cash rate since November 2011, it seems the construction industry hasn’t seen one iota of improvement in that time. Unfortunately for the industry, the central bank appears unlikely to cut rates any further, with other economic indicators such as retail spending on the up.

Foolish takeaway

Building materials shares are virtually unchanged in mid-morning trade, suggesting the market has already priced in continuing gloomy conditions. At this stage it appears hard to find any catalysts that could give the industry a boost, and it could continue to decline for some time yet.

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The Motley Fool’s purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead.  This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. Motley Fool writer/analyst Mike King doesn’t own shares in any companies mentioned.

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